Coronavirus: What is happening and what are the next steps?

05 03 2020by Tim Burt

Coronavirus: What is happening and what are the next steps?

Coronavirus: What is happening and what are the next steps?

Last updated: 4 March 2020

Coronavirus, now known as Covid-19, has disrupted business and supply chain operations as it has spread around the world. As travel bans and a shortage of government-mandated facemasks prevent staff from working in their offices or meeting suppliers – all while logistics networks slow to a crawl – the scale of the task at hand for procurement teams has started to emerge.

Amid this chaos, functions must assess and mitigate the impact of the outbreak on their internal and external operations while considering the long-term implications for functional risk management processes. To build a more informed picture of what is happening on the ground, where the impacts are being felt and how functions are looking to mitigate disruption, Procurement Leaders has been speaking with a variety of CPOs, as well as staff leading Covid-19 response efforts to discuss the issues at hand.

Overview of the impact of Covid-19

IMPACT AREAS

SHORT-TERM

LONG-TERM

Internal: managing business

Travel suspensions in China; restrictions in Asia.

Staff working from home in affected areas.

Amended project timelines and 2020 strategies.

Adjusting targets.

External: managing supply

Dramatically reduced output from Chinese suppliers.

Logistics availability throughout Asia markedly reduced.

Broader economic repercussions: recessions and slow-downs.

Greater risk of supplier insolvency.

Current challenges

Quarantine measures are disrupting the movement of goods

THE SITUATION

One China-based CPO in the telecommunications industry said quarantine measures are in full effect. The streets, he explained, were mostly empty and the government has erected strict internal borders. This is clogging up logistics networks and making the movement of goods in, around and out of China difficult for procurement functions.

One function head in the food and beverage sector noted the movement of goods between two cities in China, which usually takes a day, is now taking five to six days because of these borders and checkpoints.

Many procurement organisations, especially those in the manufacturing sector, have been looking at other countries for alternative suppliers and substitute products. But the market is competitive given numerous functions are pursuing this strategy. Even when these new suppliers or products were found, procurement teams still have concerns around onboarding as this must be completed quickly and correctly.

WHAT THE COMMUNITY IS SAYING

"Quarantine is in full effect in major cities across China. Even when people are coming back to their home towns after being away for Chinese New Year, they are having to go through further 14-day quarantines. The impact has been tremendous,"Coronavirus response lead, consumer healthcare industry

"The real issue is logistics. Public transport is locked down and some internal borders have been set up, which are making moving goods around extremely difficult,"CPO, telecommunications industry

NEXT STEPS: COMMUNICATION IS KEY

Maintain contact with logistics providers to ensure you know how your business will be affected. Where possible, look for alternative sources of supply outside of China as well as potential substitutes.

Challenges sourcing facemasks

THE SITUATION

In China, businesses are required to have facemasks for their staff before they are allowed to reopen, but the sourcing of these masks is proving to be very difficult. In the first instance, the demand for them means that it is difficult to get hold of them, but the government is also said to be seizing shipments as they enter the country and sending them up to affected regions.

Functions have been sending them into the country in smaller batches of around 10,000 units to try and avoid such seizures and they have also been trying to source them from countries outside of China.

WHAT THE COMMUNITY IS SAYING

"When we can get orders of facemasks into the country, some of those orders are being retained by the government so we are looking at splitting orders to keep them below minimums," Head of supply chain procurement, APAC, healthcare industry

NEXT STEPS: ENSURE RESOURCING IS CORRECT

CPOs should ensure crisis teams have additional procurement resource to ensure the business can source and supply facemasks to staff in affected regions. Divide facemask consignments to smaller units to reduce the likelihood of this risk.

Travel has been suspended

THE SITUATION

Travel to and from China has been banned by the vast majority of organisations. Face-to-face meetings have been suspended as have trade shows and conferences. Suppliers have been instructed not to travel to sites and this has been replaced with virtual meetings.

WHAT THE COMMUNITY IS SAYING

"Face-to-face meetings have all been suspended and so have trade shows,"CPO, telecommunications industry

NEXT STEPS: CONTINUE BANS

If the organisation has not implemented a travel ban then it should. Those that have should ensure they remain. Those bans should be extended to suppliers and virtual alternatives should take up the slack.

Working from home policies widely deployed

THE SITUATION

Teams based in China and Hong Kong have been advised to work from home. Some businesses have encountered issues in terms of providing all their staff with laptops, phones and the right connectivity.

Organisations, especially those sourcing professional services out of China, have adopted self-quarantine measures for their teams in the country.

WHAT THE COMMUNITY IS SAYING

"We buy professional services from China and have imposed self-quarantine measures on our operations over there," Head of supply chain, financial services industry

NEXT STEPS: GET THE RIGHT EQUIPMENT

Ensure staff have the equipment they need to work from home and keep that policy in place until workplaces are safe for employees to return.

Supply chain assessments

THE SITUATION

Functions from financial services to healthcare have assessed their supply chains. Some of this work had been completed before the outbreak and supply chain teams have been able to use that information.

In most cases, it has allowed functions to locate any at-risk suppliers and draw up mitigation plans.

WHAT THE COMMUNITY IS SAYING

"We have been searching for alternative suppliers in other countries but everyone is doing that. We have enough stock to keep running for around six months but, beyond that, things will come to standstill," Group purchasing director, manufacturing industry

NEXT STEPS: GO DEEPER IN THE SUPPLY CHAIN

Functions should begin exploring the deeper tiers of their supply chains, where they have the capacity for further investigation, and run assessments specifically on Tier-2 and Tier-3 exposure.

Long-term measures

Black swan events such as this are impossible to predict. The effect on the supply chain is almost entirely unpredictable. CPOs should learn from this and, in their risk management endeavours, look to build resilient supply chains – not focus on risk identification. In the long term, procurement leaders should look to:

Ensure buy-in for future risk management capability

Securing budget for risk management tools or capabilities is easiest in the immediate aftermath of a major disruption. Where the organisation has identified deficiencies in its response, procurement chiefs can use these as a burning platform to build a business case for enhancing maturity. In quieter times, the organisation’s appetite to invest in risk mitigation is weak.

Build in the digital capabilities of the procurement process

Many organisations are reporting breakthroughs in the e-procurement processes, as staff are forced to work remotely, without the advantage of face-to-face meetings with suppliers. As such, staff in China-based companies are adopting technologies more readily.

Advocate for procurement’s central role in future risk management and disaster response

The function has played a pivotal role in securing operations with the supplies it needs in demanding times. Ensure future disaster response plans place supplier managers in the centre, such that the organisation can better protect itself from the potential negative effects of future disruptions.

ONGOING SUPPORT

Although Covid-19 is sending shockwaves through global supply chains, it is important to remember the biggest losses suffered often come from more mundane sources calling for proactive rather than reactive risk management. The variety of micro-risks makes them more complex, numerous and difficult to identify compared with ’black swans’. This means they are often overlooked and receive little attention.

Procurement Leaders has a variety of resources to help members strengthen their risk mitigation techniques and promote proactive practices. Here is a collection of recommended resources to digest and share.